Brokers Reporting Clients Blocked From Refinancing Doubled to 49.2%. The 20% DTI Cap That Started on 1 February Is Part of Why

The Mortgage & Finance Association of Australia’s August 2026 Market Sentiment Survey landed on 23 September with a number that should have changed a few Monday meetings. Of the 588 brokers surveyed, 49.2 per cent said they were seeing more clients unable to refinance because of serviceability requirements. Six months earlier, that figure was 24.4 per cent. It doubled in two quarters.

Six days later, on 29 September, the Reserve Bank’s Monetary Policy Board lifted the cash rate target by 25 basis points to 4.60 per cent — the fourth rise of 2026 — and said it would keep doing what it considered necessary to bring inflation back to target, “including increasing the cash rate target further if needed.”

So the survey is already dated, and in the wrong direction. The useful question for brokers is not whether the trapped cohort is growing. It is why these clients are being blocked, because the answer has shifted, and the levers that work have shifted with it.

What the survey actually measured — and what it didn’t

This matters before anyone quotes the number at a client. The MFAA asked brokers whether they were seeing more clients unable to refinance on serviceability grounds. It is a direction-of-travel reading from 588 brokers, not a count of declined applications and not a share of the national loan book. Nobody has published a figure for how many Australian mortgages are genuinely un-refinanceable today.

The series is also worth reading in full, because it undercuts the easy “worst ever” framing. In February 2024, 83 per cent of brokers reported clients facing refinancing difficulty. By February 2025 that had fallen to 42 per cent. At 49.2 per cent, August 2026 is a re-tightening from a genuine easing, not an unprecedented event. Brokers who were writing files in 2023 have done this before.

What is different this time is the architecture sitting behind the decline.

Three constraints, stacked — and only one of them is about rates

When a client with a clean repayment history cannot move, brokers reasonably reach for the rate explanation first. It is only part of the story.

1. The buffer, which does the arithmetic

APRA expects lenders to assess new loans with a serviceability buffer of at least 3 percentage points above the loan’s interest rate. APRA confirmed it was holding the buffer at 3 percentage points in its July 2024 macroprudential update, where chair John Lonsdale said the settings “play an important role in guarding against risks to the financial soundness of banks that could, in turn, undermine the stability of the Australian financial system.” The mechanical consequence is familiar: as the cash rate passes through to product rates, the assessment rate climbs in lockstep. A borrower who was assessed comfortably in 2023 is being assessed today against a materially higher hurdle on an income that has not moved as fast.

2. The DTI cap, which does the rationing

This is the constraint most under-discussed in broker conversations, and it is the one that changes how you read a decline.

On 27 November 2025, APRA announced that lenders must limit new residential mortgage lending at debt-to-income ratios of six times income or more to no more than 20 per cent of their new lending. It took effect on 1 February 2026. Applied separately to owner-occupier and investor lending, it excludes owner-occupier bridging loans and loans for new dwellings or construction. APRA chair John Lonsdale framed it as system-level: “APRA’s macroprudential policy tools are designed to mitigate financial stability risks at a system-level.”

Read that carefully, because the operational implication is easy to miss. A buffer is an assessment test — the borrower either clears it or does not, and the answer is the same at every lender applying the same buffer. A portfolio cap is a rationing test. It is about how much high-DTI lending that lender has already written this quarter, not about your client.

Which means a high-DTI refinance can now be declined for reasons that have nothing to do with the file in front of you, that will not appear in any policy document you can read, and that may reverse next quarter when the lender’s mix resets. Two lenders with identical written policy can give you opposite answers in the same week. Brokers who treat a high-DTI decline as a verdict on the client will walk away from deals that were a timing problem.

Note also what the cap carves out: new dwellings and construction. For a high-DTI client whose objective can legitimately be met by a new build, the exclusion is real — though it is a reason to test an option, never a reason to steer someone toward a construction loan they did not want.

3. Equity, which decides whether there is a deal at all

Aussie’s analysis found 20.7 per cent of borrowers who purchased between July 2023 and August 2025 now sit above 80 per cent LVR, and that the concentration is heavily state-skewed — 51.6 per cent of Victorian buyers in that window, with Victoria accounting for 39.9 per cent of the national cohort, New South Wales 25.4 per cent and Tasmania 16.6 per cent. These figures come from a single lender group’s book analysis as reported by The Adviser, not from a regulator’s dataset, and should be attributed that way. The same analysis put the average loan size in the trapped cohort at about $646,000, against roughly $536,000 for borrowers whose equity position improved.

The practical point stands regardless of the precision: above 80 per cent LVR, a refinance stops being a rate conversation and becomes an LMI conversation, and the premium frequently eats the saving. If you work a Victorian or Tasmanian book, your trapped share is probably well above whatever the national average turns out to be.

What this does to a broker’s book

A client who cannot refinance is not a dead lead. They are a retention risk and an open service obligation, and they are usually your most loyal client — someone who came to you, has paid on time, and now cannot act on the advice they expect you to give.

The MFAA’s survey suggests brokers are already working this. In the preceding six months, 96 per cent of respondents had helped clients secure a discount from their lender, 95 per cent had helped a client refinance to a new lender, 91 per cent had restructured a home loan and 84 per cent had helped with budgeting. Client sentiment, meanwhile, deteriorated sharply: 55.3 per cent of brokers described clients as feeling negative about their finances, against 24.2 per cent six months earlier, and 40.7 per cent expected more clients to struggle with repayments over the next six months.

MFAA chief executive Anja Pannek put the tension plainly: “Responsible lending must remain at the centre of our system. At the same time, borrowers who have consistently met their repayments should not be unnecessarily prevented from moving to a more affordable or suitable home loan.” She also noted that “many borrowers may still have opportunities to reduce their repayments, even if refinancing is not immediately available.”

That second sentence is the whole job.

The ladder that is left when the refinance won’t service

When an external refinance is off the table, the options do not disappear — they move inside the incumbent lender, where no new credit assessment is triggered. Work them in rough order of effort against benefit.

1. A pricing request to the existing lender. The cheapest lever and the one with the highest hit rate, judging by the 96 per cent figure above. Retention desks price against the risk of losing the loan — so the request is stronger when you can evidence a competitor’s rate for a comparable product, even one your client cannot presently qualify for.
2. Repayment-type and structure review. Interest-only for a defined period, splitting fixed and variable, or a term adjustment. Each changes cash flow and each changes total interest paid — which is exactly the trade-off a client needs explained in writing rather than assumed.
3. Offset and redraw optimisation. Unglamorous, no application, and frequently the difference between a client who copes and a client who falls behind. Check whether the offset is actually linked and actually being used.
4. A product switch within the same lender. Where the lender permits a switch without a full reassessment, this can capture a better rate tier without touching serviceability. Policy varies widely; confirm the specific lender’s position rather than generalising.
5. Hardship, where it genuinely applies. A hardship notice is a statutory pathway with consequences, not a negotiating tactic, and the line between a commercial variation and a hardship arrangement should be drawn deliberately and documented. Where a client is in real difficulty, raising it early is almost always better than raising it late.
6. A documented decision to stay put. Where the honest answer is that the current loan, repriced, is the best available outcome, that is a recommendation — and it needs the same file discipline as a recommendation to move.

The compliance layer on the “stay put” conversation

This is where the trapped-client file carries risk that the straightforward refinance does not, and it is worth being precise about it.

ASIC’s Regulatory Guide 273, which sets out the regulator’s guidance on the best interests duty under the National Consumer Credit Protection Act 2009, addresses this directly. It states that a broker “must not suggest that a consumer remain in a credit contract without considering whether this would be in the consumer’s best interests.” On records, the guide says ASIC expects brokers to keep records of how they have acted when providing credit assistance, including records of the inquiries made into the consumer’s circumstances and of the consideration, investigation and assessment of the products recommended.

In practice that means a file which shows the refinance was investigated and why it was not available — the lenders considered, the serviceability or LVR constraint that blocked it, the in-lender alternatives tested, and the reasoning behind the recommendation that was actually made. “Couldn’t refinance, left it alone” is not that file.

The conflict priority rule deserves a thought here too. RG 273 explains that brokers must prioritise the consumer’s interests where they know, or reasonably ought to know, there is a conflict between the consumer’s interests and those of the licensee, credit representative or an associate — and that a broker must not recommend a related party’s product or service that would generate extra revenue unless doing so would also be in the consumer’s best interests. Retaining a loan with the incumbent is often the lowest-effort outcome for the broker, and on a trail-paying loan it is not a neutral one. Where the incumbent sits inside your own group’s white-label or related-party structure, that is worth consciously addressing on the file rather than hoping nobody asks.

None of this is legal advice, and the application of these obligations to a specific file is a matter for your licensee. ASIC has also just signalled that it will review lender oversight of brokers and referrer arrangements, which makes this an unhelpful quarter in which to have thin file notes on a large cohort of clients.

What to review this week

A practical triage you can run against your book in an afternoon:

1. Segment on settlement date, not rate. Pull every client who settled between July 2023 and August 2025. That is the window where purchase price and subsequent rate rises are most likely to have combined badly. Add anyone who bought in Victoria or Tasmania regardless of date.
2. Flag the LVR cases separately from the serviceability cases. They are different problems with different solutions. Above 80 per cent, LMI governs; below it, assessment rate governs. Mixing them produces muddled advice.
3. Estimate DTI before you shop the deal. If a client is at or near six times income, assume lender appetite is a moving target this quarter. Ask the BDM where their book sits on high-DTI lending before you lodge, and re-ask next quarter rather than closing the file.
4. Run the pricing request first, for everyone. It costs one email per client, requires no assessment, and on the MFAA’s numbers it works far more often than not.
5. Write the “no” down. For every client who cannot move, record what you tested, what blocked it, what you recommended instead and why. Do it when you do the work, not when someone asks for the file.
6. Diarise a re-test, and tell the client. Three months, with a named date. A portfolio cap that blocks a client in October may not block them in February. Telling the client that converts a dead end into a scheduled next conversation — and it is the difference between a client who feels helped and a client who goes looking for a broker who will.

A worked example

A couple settled a $700,000 loan in late 2023 on a $780,000 purchase in Melbourne’s outer south-east. Combined income $155,000. They have never missed a repayment. They want to move to a rate 40 basis points cheaper and they cannot.

Two things block them, and they need separating. On a flat-to-softer valuation, their LVR is marginally above 80 per cent, so any external refinance attracts LMI the saving will not cover. And at roughly 4.5 times income their DTI is not the problem — so the borrower-level fix is equity or time, not income. The ladder for this file is: pricing request to the incumbent, offset check, a documented decision to stay, and a diarised re-test in three months when the next valuation cycle may clear the 80 per cent line. If their DTI were 6.2 times instead, the lender’s portfolio position would become the live variable, and the right move would be a BDM conversation before any lodgement.

Same symptom, two different diagnoses, two different files. That distinction is the professional value a broker adds in this market, and it is not something a client can work out alone.

Where this is heading

The RBA has told the market it is willing to go further, and two major bank economics teams — Westpac and ANZ — are now forecasting a November rise (The Adviser, 1 October). If that eventuates, the assessment rate climbs again and the cohort the MFAA measured in August grows a third time.

Brokers who treat that as a volume problem will have a thin first quarter. Brokers who treat it as a book-management problem will have a documented, segmented, diarised client base at the point the market turns — and will be the first call when it does. Four-fifths of new home lending already runs through the channel. Holding that share through a tightening cycle depends less on winning new files than on being demonstrably useful to clients who, for now, cannot transact at all.

The trapped client is the hardest conversation in broking right now. It is also the one that is hardest to outsource, hardest to automate, and most likely to be remembered.